Adjusted Reserves are up 768.1% compounded annually since July 30; Adjusted Monetary Base is also spiking:

Adjusted_monetary_base

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Adj_reserves

charts via Federal Reserve Bank of St. Louis

Seinfeld investment advice: Gold, Jerry. Gold!

Category: Currency, Federal Reserve

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

17 Responses to “Adjusted Reserves: Welcome to the United States of Argentina”

  1. SL says:

    My friend (details withheld for safety) has gone looking for gold at 4 different coin shops in Seattle in the past 2 days. They are completely out of all standard coins like the Krugerrand & Americans, only a few antique and lesser known ones are available.

    He then went to Wells Fargo to draw a small amount of bulk cash. The staff went into a mild panic explaining they might not have it and told him he should have made an appointment. Nonetheless, he was able to get it.

    Don’t panic world… everything will be fine?

  2. Mike in NOLa says:

    Barry: Whose adjusted reserves are we looking at? The first graphic is self evident, but having trouble figuring out the significance of the second.

  3. sammy says:

    yes. But the multiplier effect is missing.

  4. Mike in NOLa says:

    Sometimes it’s good to be boring, eh?

    Canada rated world’s soundest bank system: survey

  5. Soo says:

    Hi Barry, can you please explain what this chart means? I have no idea what it means. What is Adjusted Reserves? What does “Adjusted Reserves are up 768.1% compounded annually since July 30; Adjusted Monetary Base is also spiking” mean?

    Many thanks in advance

  6. rdub says:

    No one has mentioned folks have begun selling bonds. TNX is up for the month of October…

    Gold, maybe. But, JPY and USD are the strongest ccys

  7. Curious readers — double click the image and you will be redirected to the St. Louis fed website. There you can read the source material for more info. (you may have to play with the URL to get beyond page 3). AH

  8. mangy cat says:

    united states of “argentina” (?)
    if you mean a country run to the dogs by ivy league ph.ds. like harvard’s blue-eyed wanker mingo cavallo, maybe you are right

    if you are saying bail out incompetent bankers whatever the cost, also

    but just imagine the reaction if in 2002 president duhalde had threatened gunboat diplomacy and disembarked troops in a pincer movement on wall street and lombard street, to recoup the deposits that shitecorp and dark horse finance (lloyds), and so many other “reputable” branches were refusing to honour
    not to say the consumer protection advertised as backing by hope-us-die emilio booty (botin in english), tangram bank and many others had solemnly vowed.

    gunboat diplomacy is precisely what alastair darling is threatening iceland now
    b.t.w. talking about truth in advertising, can anybody reasonably complain about having their funds frozen at ice-save?

    as i wrote back then, if joe ingalls had hitched his jalopy at the gateway of his bank in houston to collect his deposit, to have working capital to sow the next corn crop at his little home on the praire

    the branch manager would not have refused on the grounds that the vault was empty because he had screwed up with a loan to enron
    and if he actually had to phone h.q. for a bailout, he would have had two prompt messages:
    a) brinks truck is on its way
    b) clear out your desk by 5 p.m. today, you nincompoop

    not like bankboston’s sacerdote (priest, another good name for an opus dei, thief for the mitre), who was promoted for stonewalling

  9. Tosh says:

    Sorry bit new to economics so that why such a silly question but can anyone tell me what does this adjusted monetary base and adjusted reserve mean and signify
    ??? thks

  10. constantnormal says:

    @Tosh — the implications of a soaring monetary base are that inflation is not far behind — probably hyperinflation, as that is not an uncommon phenomenon in countries that have lost control of their economy and are printing money as a hopeless substitute for a plan. Think Zimbabwe.

    This is not the whole story, however — the opposing concept is that we are in a deepening deflation (the opposite of inflation, wherein everything but cash loses value), and the appropriate response is to print money (lots and lots of it), in an attempt to counter the deflation with inflation. That’s a dicey game at best.

    The real problem is a loss of confidence and trust. Without those items, economic transactions do not take place at all. The best way to ensure trust is to have a completely transparent system, wherein all parties can see everything about the other parties, and thus have some basis for trust and confidence to be built upon. We are a LONG way from that.

  11. bdg123 says:

    That doesn’t tell us anything. It could simply mean the Fed responded quickly in a crisis before it had a chance to sterilize its actions. Even so, quantitative easing should be expected. Bernanke told us he was going to do this years ago. It won’t add any inflationary pressures into the economy. It is simply an attempt to keep the banking system from collapsing. Isn’t that what we want? You guys really need to give up on this inflation mantra. It’s rote and wrong.

  12. Dave D. says:

    I think sammy and constantnormal have it right.

    The fractional reserve banking system causes the total money supply to be a multiple of the monetary base via lending. However, there is not much lending going on right now, so the Fed is expanding the monetary base just to avoid deflation.

    I’m certainly not an expert on this topic, but I think the implication for the future is this (if someone knows better, please correct me):

    When (If?) we get past the credit crunch and banks are lending freely again, this extra monetary base can cause hyperinflation, unless the Fed starts selling assets to decrease the base, which would result in high interest rates. Either way, we’re screwed.

  13. Tosh says:

    thanks constantnormal for the explanation …

    just curious on one more thing i understand that this phenomenal increase in money supply can lead to hyper inflation but just as abg123 pointed out can’t Fed launch sterilization to suck in the excess money supply by issuing the T biil which can be easily sold in huge current account surplus countries ( China, Japan, South Korea etc…) …

    Am i thinking in right direction or i am missing something????

  14. constantnormal says:

    @Tosh — You are exactly correct, all that is required is for the Fed to have the will, when the time arrives, to soak up the excess money by cutting back on lending, and raising rates.

    Note that this is EXACTLY the situation faced by Greenspan after the dot-com collapse, a period when he cranked open the monetary spigots and flooded the markets with money.

    Trouble is, he never found the spine to clean up all that money afterwards, and in fact, left the monetary faucets wide open for far too long, creating an excess of money available for downstream lending and thus fueling the mortgage madness that brought us to where we are today (critics — I know I’m leaving out a lot here, but this is the part that is relevant to the question).

    One would think that the Fed, having lived through the current chaos, would not hesitate to do the right thing when the time is right. But history does not inspire confidence on that score.

    Knowing when to raise rates is a lot like knowing when to dive back into the markets after having gone completely out — one makes the greatest gains by going “all in” at exactly the right moment, but the uncertainty of determining that precise right moment soars to infinity. That’s why BR is deploying his cash 10% at a time.

    Also note that raising rates has political implications and is an unpleasant task for any Fed chairman. Those who are enjoying the benefits of free money will scream to high heaven that they are being murdered if even a little of their “free money” is taken away. The actions of raising/lowering rates are never performed in a political vacuum, but always in the noisy, raucous political circus.

    At least that’s my version of “The Truth”, others are cheerfully invited to muddy the waters.

  15. Tosh says:

    Thanks a million constantnormal that very helpful …..

  16. Domingo Cavallo was the President of the Central Bank of Argentina. I found it very interesting that he places blame on the U.S. for their economic collapse:

    http://www.gamingthemarket.com/2008/10/our-engineered-market-meltdown-part-2.html